Oil market traders in Asia, the largest consumers of crude oil in the world, predict that prices will continue to rise due to diminishing hopes for an early end to Middle East tensions and also due to growing demand for physical oil shipments driven by high refining margins.
Increase in Brent Crude Oil Prices
The price of North Sea Brent crude oil last week surpassed $100 per barrel again following an attack on a major oil pipeline in Saudi Arabia. On Monday (September 23), the price of this oil rose by 3% to its highest level since May.
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Upward Trend in Physical Markets
The upward trend in prices has also extended to physical markets. The cash premium for Dubai and Oman crude oil last week reached its highest level since March, indicating fierce competition for oil shipments. Additionally, the premium for West African, U.S., and South American crude oil has also reached its highest levels in recent months.
South Korea's SK Energy last week purchased 4 million barrels of WTI crude oil for delivery in December at a price about $24 per barrel above Brent swap deals on the London International Exchange. Meanwhile, GS Caltex also bought 2 million barrels of U.S. crude oil at a similar premium compared to the Dubai benchmark for November delivery.
Impact of Tensions on the Oil Market
Due to reduced oil supply from Iran and Russia, independent refineries in China are under pressure and are seeking alternative sources. Recently, the Shenqi petrochemical company purchased a shipment of Al Shaheen oil from Qatar at a price about $23 per barrel above Dubai rates. Andreas H. Lin, Vice President of Oil Products Trading at Equinor Norway, pointed to the positive outlook for the crude oil market at the Asia-Pacific Petroleum Conference (APPEC), adding that signs of potential supply shortages are emerging in the market.
S&P Global Energy forecasts that the average crude oil price next year will be slightly below $100 per barrel. With ongoing disruptions in the Strait of Hormuz, prices could rise to $120 per barrel, but if there is a rapid recovery, they may drop below $60.
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